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"It would be wrong to protect customers"

Jean-Pierre Favennec, economist at the French Oil Institute, talks to FRANCE 24 about the oil price hike that has sparked protests across Europe and discusses the remedies put forward by European governments.

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What do you think about current efforts by the French and Spanish governments to deal with the crisis sparked by rising fuel costs?

     

I believe the move to provide temporary, one-off aid packages to the sectors most affected by rising fuel costs is a good one. The social aspect of the crisis ought not be neglected. However, aid needs to be temporary, as it is highly unlikely that oil prices will return to the levels of five years ago. And, for the same reason that one can’t jump into cold water, companies need to adapt progressively.

  

Itwould be wrong, however, to protect consumers. The people need to be used to hearing the truth, while we also seek to alleviate difficulties for those worst hit. Consumers must be prepared to pay a higher price for products that have travelled across Europe, compared to to local produce. Yet, this process of adaptation needs to be progressive. It is for this reason that bringing taxes down in order to lower the price is not a good thing in the long term. It means pushing back the time when prices inevitably go up; and in this case, the shock would be greater.  

 

Should we pressure OPEC members into increasing output, as France’s Finance Minister Christine Lagarde has called for?

 

OPEC countries are currently producing at full capacity. There are still 3-4 million unused barrels, but they contain very heavy crude that would require a lot of refining. Oil producing nations are reluctant to invest in costly infrastructure to raise output. They know very well that their customers are set to lower their consumption. Furthermore, if they produce more, prices will decrease. It is all about managing their oil assets.

 

The Commodities Future Trading Commission (CFTC), the United States’ chief commodities regulator, is probing possible speculative moves. Do you think such activities are plausible?

 

A large operator can easily purchase a major cargo of Brent, dry up the market and push prices up. This kind of speculation can be highly profitable. There have been such cases in the past, some ten to fifteen years ago. But I believe they are only marginal. Oil prices are conditioned by the markets’ predictions. Since we know that crude oil is set to rise because of limited output, people anticipate, over a ten to fifteen-year period. Structural reasons therefore explain soaring market prices. This prompts economic restructuring. Hence, in the long run, it’s a good thing.

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